Govt may cut STT to boost markets
The finance ministry is likely to reduce securities transaction tax (STT) on equity trade in the forthcoming budget in a bid to boost the capital market despite pressure to improve revenue collection.

SBI waives service fee on SME loans
Mumbai, February 5
The country's largest lender, State Bank of India, has decided to waive guarantees and annual service fees for loans to small and medium businesses guaranteed under the Credit Guarantee Fund Trust scheme.

Eurozone insists no Greek rescue without reforms
Athens, February 5
Eurozone finance ministers told Greece it could not go ahead with an agreed deal to restructure privately held debt until it guaranteed to implement reforms to secure a second financing package from the euro zone and the IMF.

NMDC looks to acquire mineral assets overseas
Mumbai, February 5
India's biggest iron ore miner, NMDC Ltd, is scouting for mineral assets in Brazil, Mozambique, Russia, the United States and South Africa, it said in a statement. The state-run miner is looking to meet its own requirements and ensure raw material security for the country's steel and fertilizer industries, it added.

Tax Advice
Tax liability on inherited assets
Q: My late father was a former central government employee who retired in 1991
and was getting a pension of about Rs 15,000 a month at the time of his death.
He never filed his income tax returns.

Iran ultimatum to India over gas field
Tehran, February 5
Iran has given a one-month ultimatum to an Indian consortium over the development of a gas field whose delay by India has been attributed to western pressure, the semi-official Fars news agency reported on Sunday.

personal
finance
Equity investments more beneficial for now
Given the uncertain nature of the "future", and the inherent risk associated with it, it’s not surprising conserving resources for optimally utilizing them is an integral part of human
behaviour. This natural tendency for savings is rooted in human motivation to seek self-preservation, growth and excellence.
However, the intricacy of the present economic setup, not the least of which includes investors’ aspirations, complex financial markets, a globally integrated economy and overlapping systemic and nonsystemic events - all present an arduous undertaking for an investor.

Bourses may trade in narrow range this week
As expected the bourses were extremely volatile last week. The markets tanked sharply on Monday and lost 370 points but regained almost all of it with a gain of 330 points on Tuesday. Clearly the reasons for the loss and gains made on Monday and Tuesday appear unjustified even three days after the events.

HSBC and Barclays Bank branches near the Burj Khalifa tower, the world’s tallest building, in Dubai. Withdrawal of international banks from the UAE has also created opportunities for local banks. HSBC, Barclays and Nomura have cut staff in emirates, while Deutsche Bank has relocated its head of equity capital markets to London — Reuters

Mainland Chinese tourists in front of the Hong Kong Convention & Exhibition Centre with the Hong Kong and Chinese flags flying. A bitter family feud between Hong Kongers and mainland Chinese sparked by the northerners' increasing financial and political clout has led to an awkward debate about the former British colony's identity. Millions of mainland tourists and investors pour into Hong Kong every year, adding billions of dollars to the local economy. — AFP

New Delhi, February 5
The government is likely to bring more services in the tax net to raise revenues and may introduce a negative list in the forthcoming budget for fiscal 2012-13.

The government is expected to keep 22 services in the negative list and impose 10 per cent tax on the rest, sources said, adding that services for the purpose would be defined as all kinds of economic activities, barring goods, money and immovable property.

At present, the tax is levied on 119 services. For the current fiscal, the central government hopes to mop up Rs 82,000 crore from this levy.

Last month, the empowered committee of state finance ministers on goods & services tax (GST) had approved imposition of service tax based on a negative list of services after the Central Board of Excise & Customs (CBEC) came out with a draft report last December.

Sources said the ministry is working hard to introduce the negative list from the next fiscal (2012-13) as that would help it garner more revenue.

The budget is expected to be announced by mid-March.

In their pre-budget consultative meeting with Finance Minister Pranab Mukherjee, industry too demanded that government should come out with negative list, while expanding the service tax base.

A negative list based on service tax represents a change in the government's approach as it is taxes on the principle of the positive list. The negative list concept is practiced globally and is proposed to be introduced in India as part of the goods & services tax.

The government is trying to introduce the new GST regime, which will subsume various levies like excise, service tax and states tax, like value added tax (VAT), entry tax and purchase tax.

Services account for nearly 63 per cent of India's gross domestic product and widening of the net could yield an additional 20per cent in service tax.

The empowered committee had suggested all the items mentioned in the Indian constitution's Schedule II, such as entertainment, should be included in the negative list to ensure that the central government could not impose tax on them. —
PTI

The finance ministry is likely to reduce securities transaction tax (STT) on equity trade in the forthcoming budget in a bid to boost the capital market despite pressure to improve revenue collection. The ministry, however, may not revisit the issue of commodities transaction tax (CTT), which was aborted in 2009 after protests by industry, sources said, adding the government was keen to go ahead with the broader policy of reducing the cost of financial transactions. Industry associations, in their pre-Budget consultations with Finance Minister Pranab Mukherjee, have pleaded for maintaining status quo on tax rates to balance the need for promoting growth without sacrificing revenue.

Mumbai, February 5
The country's largest lender, State Bank of India, has decided to waive guarantees and annual service fees for loans to small and medium businesses guaranteed under the Credit Guarantee Fund Trust scheme.

To improve credit flow to the SME sector, the government-appointed Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) acts as a guarantor to loans up to Rs 1 crore. CGTMSE charges the twin fees to borrowers.

"The fees are basically a kind of insurance premium. To help clients we have now decided to pay up to the Trust from our books," managing director for national banking, A Krishna Kumar, Said . The decision was taken two weeks ago.

The Trust, which came into being four years ago, charges a guarantee fee ranging from 1% to 1.5% of the loan amount while the annual service fee ranges from 0.50-0.75 per cent.

Kumar parried a question on the financial implication of the move on the bank's balance sheet, but said this was a long-term arrangement, not a short-term move to lure customers. Explaining the rationale, he said the presence of such a commission clause dissuades "good borrowers" who felt it was unnecessary to take on the extra burden in loan servicing.

Additionally, paying up the fees from the bank's own books will act as a "psychological deterrent" to the bank's staff, who can become complacent as the Trust stands guarantor to such loans, Kumar said. If a loan turns bad, CGTMSE pays back 75% for the principal to the lending bank and an additional up to 15% depending on the case, he added. —
PTI

Athens, February 5
Eurozone finance ministers told Greece it could not go ahead with an agreed deal to restructure privately held debt until it guaranteed to implement reforms to secure a second financing package from the euro zone and the IMF.

Eurozone ministers had hoped to meet on Monday to finalise the second Greek bailout, which has to be in place by mid-March if Athens is to avoid a chaotic default, but the meeting was postponed because of Greek reluctance to commit to reforms.

Instead, the ministers held a conference call on Saturday to take stock of progress on the second financing package, which eurozone leaders set at 130 billion euros back in October.

"There was a very clear message that was conveyed from all participants of the teleconference ... to the Greeks that enough is enough," one eurozone official said. "There’s a great sense of frustration that they are dragging their feet.

"They should get their act together and start talking honestly, decisively and speedily with the Troika on the aspects of the programme that remain to be finalised — on fiscal and labour market reforms," the official said.

The Troika are the representatives of the European Commission, the European Central Bank and the International Monetary Fund, who have prepared a Greek debt sustainability analysis on which the second financing programme will be based.

"The main issue is the lack of reform, or prior action, in Greece," a second eurozone official said.

Eurozone ministers were also dissatisfied with Greek Finance Minister Evangelos Venizelos because they believed the minister was paying more attention to his position within his party ahead of the April elections than to talks about reforms.

"There is a great sense of frustration with Minister Venizelos, who is very hard to get hold of because he is very busy campaigning for the leadership of (the Greek party) PASOK, so he is not available to meet with Troika members," the first official said.

The Greek finance ministry said that comment seemed "ridiculous, if not suspicious, to all those who have a basic knowledge of the minister's daily schedule". The ministry said his schedule included long meetings with troika representatives, constant contacts with counterparts and heads of institutions involved in the troika, meetings with the prime minister, teleconferences, contacts with the Institute of International Finance on a planned bond swap and generally "superhuman efforts made 24 hours a day" by a small group of people led by Venizelos.

The first eurozone official said ministers had vented their frustration to Venizelos during the conference call.

"He is preparing his own political future, rather than the future of his country. People are seriously disgruntled about that and have conveyed this very clearly to him this afternoon," the official added. — Reuters

Mumbai, February 5
India's biggest iron ore miner, NMDC Ltd, is scouting for mineral assets in Brazil, Mozambique, Russia, the United States and South Africa, it said in a statement. The state-run miner is looking to meet its own requirements and ensure raw material security for the country's steel and fertilizer industries, it added.

NMDC said it had identified an iron ore asset in Brazil with reserves of more than 1 billion tonnes. It is also planning to acquire coking coal assets in Russia and Mozambique with more than 50 million tonnes and 150 mt of reserves, respectively.

NMDC, which recently acquired Legacy Iron Ore in Australia, is also under due diligence to acquire a rock phosphate asset in the country. The company has a market capitalization of $14.8 billion. — Reuters

Mumbai, February 5
Led by IT bellwether Tata Consultancy Services, eight of the country's top ten valued companies added Rs 39,894.58 crore to their combined market capitalization in a strong market the last week.

The market cap of TCS advanced by Rs 11,606 crore to Rs 228,632 crore last week, becoming the top gainer in the chart.

Further, State Bank of India and HDFC Bank added Rs 3,841 crore and Rs 5,321 crore, respectively, to their market value. The m-cap of SBI stood at Rs 133,546 crore, while that of HDFC Bank was at Rs 118,431 crore at close on Friday last week.

However, the market cap of state-run Coal India Ltd (CIL) got eroded by Rs 9,033 crore to Rs 206,039 crore and FMCG giant ITC Ltd lost Rs 1,170 crore from its valuation which was at Rs 156,351 crore.

The Bombay Stock Exchange benchmark Sensex rose by over 2 per cent in the last week. —
PTI

Q: My late father was a former central government employee who retired in 1991 and was getting a pension of about Rs 15,000 a month at the time of his death. He never filed his income tax returns. My mother is alive and I've two married sisters. What is our income tax liability when my father's assets (FDs of about Rs 30 lakh, about Rs 3 lakh in cash and about 1 kg gold ornaments in a bank locker along with immovable property valued at about Rs 1 crore) will be divided among us? One of my sisters and I are both self-employed and file our tax returns regularly. Our mother is not an income tax assessee.

— Natasha Gupta

A: Assets received through inheritance on the death of a person do not attract any income tax. However, the nature of assets mentioned in the query indicates your father was liable to file a wealth tax return. This is because the definition of assets chargeable to wealth tax includes cash in hand exceeding Rs 50,000 as well as gold ornaments. Immovable property in the nature of a guest house, farmhouse, etc, and urban land are also includible in assets on which wealth tax is chargeable. The nature of the immovable property has not been indicated in the query and therefore it would not be possible to advise whether the same could also form part of the taxable wealth. Wealth tax was chargeable at the rate of 1 per cent on wealth exceeding Rs 15 lakh up to assessment year 2009-10 and at the rate of 1 per cent on wealth exceeding Rs 30 lakh from AY2010-11 onwards. I may add the assets of your late father will be inherited by all the three legal heirs in equal proportions.

Q: This is in reference to your column dated January 21, 2012 in this paper, where you mentioned both husband and wife are entitled to a deduction of interest to the extent of Rs 150,000 each. Can both be eligible for rebate up to a total amount of Rs 300,000 and, if yes, under which provision of the Income Tax Act?

— Param Sohi

A: I had explained earlier in case both husband and wife are separately making repayment of a loan raised for the purchase or construction of a house and interest thereon is also being paid by both of them, each of the borrowers would be entitled to claim tax deduction to the extent of Rs 150,000. This is in accordance with the provisions of section 24 of the Income Tax Act, 1961.

Tehran, February 5
Iran has given a one-month ultimatum to an Indian consortium over the development of a gas field whose delay by India has been attributed to western pressure, the semi-official Fars news agency reported on Sunday.

Tension between Iran and the West rose last month when Washington and the European Union imposed the toughest sanctions yet on Iran in a bid to curb its nuclear programme.

"Iran has given a one-month ultimatum to India over its decision on participating in the development of Farzad-B gas field," Fars quoted an unnamed oil official as saying. "Possibly foreign pressures played a role in influencing Indian's delays to develop the field," he said.

Iran said the field's in-place gas reserves have been estimated at 21.7 trillion cubic feet (tcf), of which 12.5 tcf are recoverable. The report said Iran was in talks with state-run Oil & Natural Gas Corp (ONGC) for about three years.

In October 2010, Iran said it would soon sign a $5 billion contract with a foreign company to develop its offshore Farzad-B gas field, without naming the company.

ONGC has exclusive exploration rights for the offshore Farsi block, of which the Farzad-B gas field is a part.

The European Union's ban on Iranian oil came after U.S. President Barack Obama signed new sanctions into law on New Year's Eve that would block any institution dealing with Iran's central bank from the U.S. financial system.

The measures are aimed at shutting off the second-biggest OPEC (Organization of the Petroleum Exporting Countries) oil exporters' sales of crude.

However, India which relies on Iran for about 12 percent of its oil needs or around 350,000-400,000 barrels per day (bpd), said it would not cut its oil imports from Iran.

If fully implemented, the measures will make it impossible for countries to buy Iranian oil.

Iran sits on the world's second-largest natural gas reserves, but the development of its energy sector has been slowed by the international sanctions. Many foreign companies have been forced to pull out of the Islamic state's energy sector due to the fear of sanctions.

Iran has previously excluded some foreign oil and gas companies, accusing them of dragging their feet over its projects. — Reuters

Given the uncertain nature of the "future", and the inherent risk associated with it, it’s not surprising conserving resources for optimally utilizing them is an integral part of human behaviour. This natural tendency for savings is rooted in human motivation to seek self-preservation, growth and excellence.

However, the intricacy of the present economic setup, not the least of which includes investors’ aspirations, complex financial markets, a globally integrated economy and overlapping systemic and nonsystemic events - all present an arduous undertaking for an investor. Moreover, the idea of saving without having to invest is a risk in itself. That’s because inflation slowly corrodes the wealth of a noninvested savings corpus.

The point is that savings are and will remain an essential element in obtaining economic freedom. But that is only a partial truth. Eventually it’s a scientific approach to investment that has the maximum potential to provide the desired outcome. Simply stated, the entire idea of methodical investing can be summed up as: Beginning early, knowing your objectives, planning accordingly, doing it regularly, sticking to the plan and reviewing periodically.

Greater long-term returns

From a financial professional perspective, an investment in equity tends to be a far more advantageous and cost-effective option than other available investment avenue over a long term.

In a case-study that dissected the investment performance of various assets over a 31-year period, it was found the equity market provided a CAGR (compound annual growth rate) return of 16.06%. In the same period the return on investment provided by gold, fixed deposit was around 9.73%, and 8-10%. respectively. And mind you - this doesn’t take into account the posttax yield on investment, which would be even lower. The point we are making is simple. That, equities as an asset class tends to provide a comparatively higher return on investment in long run as compared to others. And therefore it is much better suited to generating wealth over a longer period of time.

Furthermore, it’s also important to begin investing early. And that is for two reasons! Firstly it provides the investor a higher risk appetite and a higher potential for return over the long run. Secondly, a seemingly marginal delay in investment, results in a disproportionately high opportunity loss for the investor in the eventual realization of the corpus.

In a common understanding, as the time progresses, the capacity of an individual to bear associated risk reduces, and therefore the advisable ratio of exposure to equity also declines. Also, the uncertainty of the timing of lump sum investment adds to the risks of investment.

Systematic Investment Plans

To circumvent this problem, an investor is advised to spread the investment transaction over a period of time. This assists in averaging the cost of investment and diversifies the risk across the time period. Additionally, a long-term investment horizon is also a key necessity. An investor can achieve this by investing in equities oriented mutual fund by means of a Systematic Investment Plan (SIP).

In a SIP the investor provides a periodic sum of investment on a regular basis, which is then invested into an equities portfolio. The aggregation of these investments over a long period takes the shape of a large corpus. Concurrently, a SIP also averages the cost of investment while conferring significant wealth creation potential to the investor.

The investor can adapt multiple strategies to obtain efficient investing outcomes. For instance, an investor may choose to park a significant capital in a fixed income portfolio such that it provides a regular dividend/interest. Thus, based on the proceeds from such investment, a SIP in equities oriented funds can be initiated. Consequently, the investor is not only able to reduce the risk on the original capital amount, but is also able to position himself/herself for potential returns of equities.

Systematic Transfer Plans

Also, an investor can choose to invest the fund in a fixed income fund; and then, by means of Systematic Transfer Plan (STP), the investor can transfer a fixed amount periodically from the fixed income fund into the growth oriented equities fund. Thus, by this mechanism, the capital continues to earn relatively stable returns from the fixed income fund meanwhile it gets allocated at average cost of investment into equities.

To conclude, the most severe of tasks in investing in equities or equities oriented assets is rational decision-making. Equity investments invoke alternating emotion of greed and fear in swift tandem, and this can cloud the judgmental faculties. Therefore, it helps to reassert that a disciplined and systematic approach to investment will go a long way in fulfilling the aspirations of life.

As expected the bourses were extremely volatile last week. The markets tanked sharply on Monday and lost 370 points but regained almost all of it with a gain of 330 points on Tuesday. Clearly the reasons for the loss and gains made on Monday and Tuesday appear unjustified even three days after the events.

The Bombay Stock Exchange Sensex gained 370.98 points or 2.15% to close at 17,604.96 points. The National Stock Exchange Nifty gained 121.15 points or 2.33% to close at 5,325.85 points. All the broader indices gained and fared better than the benchmark indices with the BSE 100, BSE 200 and BSE 500 gaining 2.26%, 2.45% and 2.49%, respectively. The BSE MidCap gained 2.96% while the BSE SmallCap gained 3.00%.

Among the best performing sectoral indices were the BSE Realty that gained 4.77%, BSE Auto (up 3.54%) and BSE IT (up 3.33%). The BSE Capital Goods lost 0.97%. The top gainers were Power Finance Corp (up 11.06%), Hero Honda (up 7.35%) and JSW Steel (up 7.10%). The top losers included Coal India (down 4.20%), BHEL (down 3.6%) and Larsen & Toubro (down 2.03%).

The Indian rupee continued its rally and closed at Rs 48.70 to the US dollar. Foreign institutional investors were big buyers with net purchases of Rs 5,867 crore during the week, while domestic institutions sold stocks valued at Rs 1,085 crore.

The Supreme Court cancelled all the 122 licenses ostensibly allotted on "first come first served" basis" in the 2G telecom case. The court directed the government to auction the licenses. This event would have an impact on the current round of elections and also affect the companies whose licenses have been cancelled. There could be some positive impact in the short and medium term for companies who are existing players and have been in the business of telecom before the awarding of licenses under the 2G system.

Banks that have financed against 2G licences stand to lose as their loans are not necessarily backed by assets and there could be some hit to such loans. Banks are likely to make representation to thee government, telecom regulator and if necessary the court that the money paid against licenses be refunded to them and be adjusted against their loans. What action would be taken is too early to guess or hazard and would take some time before clarity does emerge.

World markets have been positive and that coupled with the huge investment by foreigners has helped our markets gain for a fifth consecutive week. Another week of gain and people may begin to say the bull run is back on track as the bourses would have gained over 15% since the beginning of the year.

The course of action in the markets next week is an extremely difficult one to make simply because as long as FIIs pour over a billion dollars a week thee markets have to gain irrespective of what one may say. Domestic institutions, local events and politics, corporate results all would have no impact against an inflow of that kind.

The week ahead is likely to be dominated by FII activity and global cues. The rally has been swift and has gained significantly. For the markets to remain healthy we need a meaningful correction or consolidation to happen otherwise negative cues would make the market vulnerable. I expect the markets to trade in a narrower range of plus or minus 125 points on the Nifty for the current week.

The BSE Sensex has support at 17,448, then at 17,200, then at 17,078 and finally at 16,828 points. It has resistance at 17.696 points, then at 17,880, then at 17,943 and finally at 18,131 points. The NSE Nifty has support at 5,275, then at 5,217, then at 5,196, then at 5,156 and finally at 5,099 points. It has resistance at 5,355, then at 5,404, then at 5,434, then at 5,503 and finally at 5,551 points.

The author is founder of KRIS, an investment advisory firm. The views expressed are his own

Market pointers

lThe stock market rallied for a fifth week in a row on aggressive buying from FIIs and strong manufacturing sector growth in January 2012

l The BSE Sensex gained 370.98 points or 2.15% to close 17,604.96 for the week ended Feb 3. In calendar 2012 the benchmark index has surged 2,150.04 points or 13.91% so far. Meanwhile, the S&P CNX Nifty rose 121.15 points or 2.33% to 5,325.85

l FIIs stepped up purchases of Indian stocks with a net inflow of a massive Rs 1941.23 crore on Thursday (February 2), according to provisional stock exchange data. FIIs bought shares worth a net Rs 10,357.7 crore in January 2012, according to SEBI data

l This week investors will closely watch the next batch of Q3 results that are likely to dictate the near-term trend on the bourses. On the macro front, data on industrial production for January 2012 is due on Feb 10. On the political front seven phase polling for assembly elections in U.P. have begin

l On the global market front, marketmen will continue to await the outcome of negotiations between Greece and the IMF for landmark debt deals, which are expected to help Greece avoid a disastrous default